Today we’ll be examining four solid companies that, thanks to the state of the U.S. economy, are now considered undervalued by many investors and could be poised for a significant move to the upside when the market ultimately rebounds.
Sky-high inflation and the Federal Reserve’s attempts at slowing it down via rising interest rates have led many observers to believe a recession is coming.
With fears of recession comes a downturn in stock prices for growth companies.
Below are four top companies that are down in 2022 but stand to rally when the market turns.
The parent company of Google, Android and YouTube, Alphabet is the 3rd largest company by market cap on U.S. exchanges. The tech giant got caught up in the negative sentiment surrounding online advertising, resulting in a steep stock sell-off.
The brief hiccup in online advertising is directly tied to the fears of a coming recession, causing companies to reduce its advertising spending. Since Alphabet derives most of its revenues from advertising, it has been significantly impacted by the downturn. Despite the challenging macro environment, Alphabet could still grow revenues by 13% YoY and produce $12.6 billion in free cash flow. With the stock still 18% off its all-time high, investors should realize outsized gains once the market turns.
Alphabet is currently trading at $120.75 per share, down -0.78% on the day. YTD, GOOGL stock is down –16.72%.
Another company that has had a rough year, but may be a turnaround target, is PayPal. The stock is down 65% since July of last year due to several factors, including a slowdown in consumer spending thanks to the COVID-19 pandemic and war in Ukraine, eBay no longer using PayPal as its standard payment method and management over-projecting financial results.
The stock is still down 67% from its highs, so there is limited risk for further downside and great potential for market-beating gains. However, there are signs that the company is turning the corner. In their most recent earnings report, the company reported a 9% rise in total payments, a 16% increase in transactions per active user and a 22% increase in free cash flow.
Shares of PayPal are currently trading at $100.65 per share, down -1.4% on the day. YTD PYPL stock is down -48.37%.
PubMatic is another company whose business revolves around online advertising, so it’s no surprise that the stock is down 43% from its December 2021 all-time high. The company operates as something of a broker, connecting digital ad sellers with buyers.
As the smallest company on this list, PubMatic has the greatest runway for further growth. Despite the pessimism surrounding online advertising, PubMatic raised revenues by 27% YoY. The company’s connected TV segment increased by 150% YoY; their 4% market share of this segment means they have plenty of room for further growth.
Shares of PubMatic are currently trading at $22.49 per share, down -0.35% on the day. YTD PUBM stock is down -32.32%.
The cloud is one of the most powerful business tools developed recently. A company’s ability to access its data and processes from anywhere has proven to be a boon for productivity. As more and more business functions are migrated to the cloud, the need to monitor and analyze how cloud operations are functioning is becoming more significant. Enter Datadog, which offers software solutions to maximize the effectiveness of cloud operations.
The company recently posted very positive earnings, with revenue increasing 74% YoY and high-spend customers increasing 54%. Datadog also provided strong forward guidance, with Q3 revenues expected to grow 34%. The stock price is still down over 40% from its high, so there’s plenty of opportunity for a rebound moving forward.
Shares of Datadog are currently trading at $110.44 per share, down -2.73% on the day. YTD DDOG stock is down -32.59%.
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Disclaimer: The Editor of Wealthy VC holds a long position in GOOG and PYPL.